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General Ledger Reconciliations: How to Conduct GL Recs
An investigation may determine that the company wrote a check for $20,000, which still needs to clear the bank. In this case, a $20,000 timing difference due to an outstanding check should be noted in the reconciliation. For teams on Numeric, the trial balance and supporting document total will auto-populate each month, no need to download. General ledger accounts fall into five main categories; each plays a distinct role in capturing different aspects of a company’s financial activities. In this article, we’ll walk through the importance of general ledger reconciliation, how it works, and why it’s a critical practice for maintaining your company’s financial health.
How Account Reconciliation Works (Reconciliation Process)
For small businesses, the account reconciliation process helps identify potential misstatements and ensures the accuracy of financial statements. Today, most accounting software applications will perform much of the bank reconciliation process for you, but it’s still important to regularly review your statements for errors and discrepancies that may appear. Account reconciliation is done to ensure that account balances are correct at the end of an accounting period.
This helps identify timing delays in deposits, payments, fees, and interest that may have been recorded by one entity but not the other. Account reconciliation is typically carried out at the end of an accounting period, such as monthly close, to ensure that all transactions have been accurately recorded and the closing statements are correct. For example, a grocery store dealing with daily cash transactions relies on daily cash reconciliations to manage cash flow effectively. In contrast, a consulting firm may find that monthly reconciliations for invoices and expenses are enough. Meanwhile, a construction company dealing with equipment and material costs may choose quarterly reconciliations to guarantee their financial processes operate smoothly. Reconciliation must be performed on a regular cash flow statement template for excel and continuous basis on all balance sheet accounts as a way of ensuring the integrity of financial records.
The errors should be added, subtracted, or modified on the bank statement balance to reflect the right amount. Once the errors have been identified, the bank should be notified to correct the error on their end and generate an adjusted bank statement. A company may issue a check and record the transaction as a cash deduction in the cash register, but it may take some time before the check is presented to the bank. In such an instance, the transaction does not appear in the bank statement until the check has been presented and accepted by the bank. That description unfortunately only paints reconciliation with the rosiest of glasses.
Two Ways to Reconcile an Account
Conversely, identify any charges appearing in the bank statement but that have not been captured in the internal cash register. Some of the possible charges include ATM transaction charges, check-printing fees, overdrafts, bank interest, etc. The charges have already been recorded by the bank, but the company does not know about them until the bank statement has been received.
- It looks at the cash account or bank statement to identify any irregularity, balance sheet errors, or fraudulent activity.
- Using a double-entry accounting system, as shown below, ABC credits cash for $2,000 and debits assets, which is the equipment, by the same amount.
- An investigation may determine that the company wrote a check for $20,000, which still needs to clear the bank.
- For example, the internal record of cash receipts and disbursements can be compared to the bank statement to see if the records agree with each other.
What Appears on a Bank Reconciliation Statement?
For example, the internal record of cash receipts and disbursements can be compared to the bank statement to see if the records agree with each other. The process of reconciliation confirms that the amount leaving the account is spent properly and that the two are balanced at the end of the accounting period. As a result, the accounting industry has sought ways to automate a previously strenuous manual process.
For many accountants, reconciling GL accounts is a painstaking exercise, one that takes hours to identify the transactions keeping dozens or more accounts out of balance. Despite even the most thorough procedures, errors in general ledger reconciliation can still occur. Understanding these common mistakes can help you avoid what are gross wages them and maintain accurate financial records. Then over time as the company matures, they should aim to increase the percentage of accounts reconciled to ensure full confidence across the general ledger. Regular account reconciliation should be combined with invoice reconciliation as part of your internal controls in accounts payable. Keeping your accounts reconciled is the best way to make sure that your balances are accurate and an important part of ensuring adequate financial controls are in place.
Prepaid assets, such as prepaid insurance, are gradually recognized as expenses over time, aligning with the general ledger. After scrutinizing the account, the accountant detects an accounting error that omitted a zero when recording entries. Rectifying the error brings the current revenue to $90 million, which is relatively close to the projection. Reconciling your bank statement stockholders’ equity: what it is how to calculate it examples can help you avoid bounced checks (or failing to make electronic payments) to partners and suppliers.
However, the balance sheet generally is only concerned with the equity, liabilities, and asset accounts. So, for example, conducting accounts receivable reconciliation is a necessary part of any general ledger and balance sheet recs. But expense and revenue accounts only appear on the general ledger, so reconciling those accounts has no bearing on the balance sheet. These steps can vary depending on what accounts you are reconciling, but the underlying premise is always the same – compare your ending balance against supporting documentation and make any adjustments as needed.
